KBS Real Estate Investment Trust Inc. Fraud

Soreide Law Group is investigating the possible securities law violations, fraud, breach of fiduciary duty and unsuitable sales of the KBS Real Estate Investment Trust Inc. (“KBS REIT I”). KBS REIT I is a non-publicly traded real estate investment trust focused on the commercial real estate market that has seen a sharp drop in its value, and has stopping paying distributions to investors. KBS REIT’s were typically sold by FINRA registered stock brokers and financial advisors.

REITs typically pay a high commission which is often as much as 15%. This high commission incentives the stock brokers to recommend a product that may be unsuitable. FINRA recently announced that it is paying close attention to the sale of REITs and, in particular, the ways in which broker/dealers marketed and sold the products to investors. In many cases, and notwithstanding the risk of REIT investments, broker-dealers marketed these investments as safe and secure.

In April 2012, KBS REIT I told investors that it was slashing the value of the REIT to $5.16 per share, from $7.32, a drop of 29%. “The new pricing of KBS REIT I reflects the current status of the portfolio, and the discontinuation of distributions was made with the goal of managing the REIT’s debt obligations and cash flows, and attempting to maximize the total return to investors over time,” said Keith Hall, executive vice president of KBS REIT I. The offering price paid by most investors for KBS REIT I was $10 per share. KBS REIT I also announced that it was ceasing its distributions to investors.
Most investors purchased the KBS REIT I believing that it was a safe and secure investment which generated income with no risk of loss of principal. Previously, the REIT had been paying investors annual distributions of 5.3% which was attractive to yield-seeking investors. KBS REIT I raised approximately $1.7 billion from investors, who now hold at a loss marked-down securities which pay no income. This recent devaluation indicates investors have losses of over $800 million.

A REIT is an investment company that buys and manages a portfolio of real estate assets. A REIT can have thousands of investors, and this combined purchasing power gives a REIT the potential to buy institutional-class properties and extensive portfolios of assets. With investments in several properties, REIT shareholders can own indirect interests in assets diversified across geography, asset class and tenant type. Most REITs offer the opportunity to invest for as little as a few thousand dollars. Per IRS rules, a REIT must pass at least 90 percent of its income to the shareholders. By complying with this and other regulations, REITs avoid being taxed at the corporate level, thus eliminating the dreaded “double taxation” that occurs in other corporations.

REITs were touted as being safe and secure investments that would maintain value and provide a steady income stream. Other REITS, including those from Behringer Harvard, Cornerstone Core Properties, Hines, Wells and Inland Western have also seen precipitous declines in value and the curtailment of distributions